Consumer Sentiment in U.S. Rose More Than Forecast in May

Confidence among U.S. consumers climbed more than forecast in May, indicating employment growth is helping Americans cope with higher fuel and food costs. Photographer: JB Reed/Bloomberg

May 13 (Bloomberg) -- Consumer confidence climbed more than
forecast in May as Americans turned more hopeful that employment
gains will be sustained, helping them cope with higher fuel and
food costs.

The Thomson Reuters/University of Michigan preliminary
consumer sentiment index rose to 72.4, a three-month high, from
a final reading of 69.8 in April, the group reported today. The
gauge was projected to rise to 70, according to the median
forecast of 62 economists surveyed by Bloomberg News.

Payroll gains for seven consecutive months and rising
retail sales since July indicate consumer spending, the biggest
part of the economy, will keep growing. At the same time, the
costliest gasoline since July 2008 and bigger bills for
groceries underscore the burden on households that may restrain
confidence.

“Improvement in the job situation has helped stabilize
confidence after the big hit due to gas prices,” said Omair
Sharif, an economist at RBS Securities Inc. in Stamford,
Connecticut. “High prices are still clearly weighing on
sentiment. It means very gradual, modest gains in consumer
spending.”

Estimates in the Bloomberg survey ranged from 66 to 75. The
index averaged 89 in the five years leading up to the recession
that began in December 2007.

Consumer Prices

Another report today showed the cost of living rose in
April, led by increases in food and fuel costs that are starting
to filter down to other goods and services. The consumer-price
index increased 0.4 percent, matching the median forecast of
economists surveyed by Bloomberg and following a 0.5 percent
advance in March, according to figures from the Labor Department
showed. Excluding volatile food and energy, the so-called core
gauge rose 0.2 percent, also as projected.

Stocks retreated as shares of financial and technology
companies dropped. The Standard & Poor’s 500 Index decreased 0.1
percent to 1,346.72 at 10:25 a.m. in New York. Treasury
securities rose, sending the yield on the benchmark 10-year note
down to 3.18 percent from 3.22 percent late yesterday.

The sentiment survey period is the first to reflect the May
1 news that the U.S. killed al-Qaeda leader Osama bin Laden. The
death of the FBI’s most-wanted terrorist also may have helped
lift sentiment.

Consumer Comfort

The Bloomberg Consumer Comfort Index fell to a six-week low
in the period ended May 8, and showed the jump in gasoline
prices was hurting Americans’ outlook on their finances.

That conclusion is corroborated by today’s Michigan report.
The group’s index of current conditions, which reflects
Americans’ perceptions of their financial situation and whether
it is a good time to buy big-ticket items like cars, fell to
80.2 from 82.5 the prior month.

The index of consumer expectations for six months from now,
which more closely projects the direction of consumer spending,
climbed to 67.4 from 61.6, the biggest gain since September
2009. The increase was related to growing optimism about jobs as
31 percent of respondents said they had heard employment was
improving, the most since 1983, according to an e-mailed note
from economists at Barclays Capital Inc. in New York with access
to the report.

The average price of regular fuel climbed to $3.99 on May
4, the highest since July 2008, and has exceeded $3.95 each day
this month, according to AAA, the nation’s biggest motoring
organization.

Inflation Expectations

Consumers in today’s confidence report said they expect an
inflation rate of 4.4 percent over the next 12 months, down from
4.6 percent in the prior survey.

Over the next five years, the figures tracked by Federal
Reserve policy makers, Americans expected a 3 percent rate of
inflation, up from 2.9 percent the previous month. Longer-term
price expectations had been as high as 3.2 percent in March.

Payrolls grew by 244,000 last month, the seventh straight
gain, after increasing a revised 221,000 the prior month, Labor
Department figures showed. Nonetheless, the jobless rate climbed
to 9 percent, the first increase since November.

New York-based Coach Inc., the largest U.S. maker of luxury
leather handbags, is counting on shoppers to generate higher
full-priced sales as sentiment recovers. Cincinnati-based Macy’s
Inc., the second-largest U.S. department store chain, this week
raised its annual profit forecast and said sales will rise more
than it previously anticipated.

“As the consumer sentiment continues to improve we’ll be
able to back off our promotion level slightly and gain some
pricing power in our factory channel,” Coach’s Chairman and
Chief Executive Officer Lew Frankfort said at an event in New
York yesterday, referring to the company’s factory outlets.